The SBP’s announcement regarding the reduction of the key or policy rate by 100 basis points to 12 percent from 13 percent was made on Monday. The move was in conformity with market expectations.
With this change, the policy rate is now 12 percent, a total reduction of 1,000 bps from June 2024, when it was a whopping 22 percent. The announcement was made by the Governor of the SBP, Jameel Ahmad, at a press conference after the Monetary Policy Committee deliberated and announced the Policy rate.
Analysts had anticipated this decision against a background of government actions to ease inflationary pressures. In December 2024, the Central Bank had already slashed the policy rate by 200 bps to 13 percent. Over the past five MPC meetings, the SBP had cumulatively managed to reduce the rate by 900 bps.
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The SBP further stated in the press release that “headline inflation declined to 4.9 percent year on year in November 2024, in line with the expectation of the MPC.” The deceleration was attributed primarily to the sustained drop in food inflation and waning of the impact of the gas tariff increase implemented in November 2023.
The MPC, on the other hand, noted that core inflation maintains its grim persistence at 9.7 percent, with consumer and business inflation expectations constantly swinging. The committee, therefore, reiterated its earlier view of short-term unpredictability before settling down within the target range.